✦ A new way to invest in African startups

Investing beyond Africa’s “Big 4” tech markets
✦ A new way to invest in African startups

Hi Quartz Africa readers,

Nigeria, Kenya, South Africa, and Egypt consistently receive the largest share of funding for startups in Africa. Known as the “Big 4” markets, they accounted for an estimated 92% of total tech investment on the continent in 2021. This leaves innovators in 50 other markets competing for the little that remains.

The “Big 4” markets have large populations and established regulatory systems that have enabled the development of the continent’s strongest tech ecosystems—more developers, incubators, accelerators, and investors.

Legislation plays a significant role in enhancing those ecosystems and keeping them competitive. Egypt in 2021 introduced new legislation allowing the Central Bank to allocate banking licenses to fintech and digital commerce firms, as the country looks to expand the digital economy. And in Kenya—a global mobile money pioneer—the government is wooing fintechs and investors from around the world with tax and ownership incentives under the Nairobi International Financial Centre (NIFC).

Investors, especially those unfamiliar with Africa’s socioeconomic landscape, simply see the “Big 4” markets as safer bets. However, innovation is present across the continent—impactful startups can be found everywhere from Senegal to Tanzania, Botswana, Ghana, Morocco, and several other countries, and savvy investors hungry for opportunities are looking beyond the “Big 4.”

A reminder that this is the final issue of the Quartz Africa Member Brief. We have valued your membership. Check your inbox for guidance from the marketing team on next steps.

Cheat sheet

💡 The opportunity: Tech funding in Africa is concentrated in only four markets, leaving space for investors to pursue opportunities outside the beaten path

🤔 The challenge: Tech ecosystems outside the “Big 4” markets aren’t as developed as in the major markets, leaving several gaps for investors and founders to plug

🗺️ The roadmap: Building startups outside the “Big 4” markets requires a holistic approach that supports growth of the larger ecosystem as well

The stakeholders: Investors, founders, incubators, accelerators, governments, and regulators

By the digits

92%: Share of total tech investment in 2021 that went to Nigeria, Kenya, South Africa, and Egypt

49%: Proportion of total professional developers in Africa living in Nigeria, Kenya, South Africa, and Egypt

$4.3 billion: How much African startups raised in 2021

1/3: Fraction of tech incubators and accelerators in Africa that are in Nigeria, South Africa, Kenya, and Egypt

Case study

Name: Madica

HQ: San-Francisco, but Africa-focused

Head: Emmanuel Adegboye

Madica is an Africa-focused investment program launched this year by Flourish Ventures, the San Francisco-based venture firm funded by eBay founder Pierre Omidyar. While Flourish focuses on fintech, Madica is sector-agnostic and plans to back 25-30 African entrepreneurs with up to $200,000 each over the next three years. Madica will also offer additional support in the form of access to industry networks, mentorship, and training. Madica is working closely with Afrilabs—a network of around 400 tech hubs spread across 52 African countries that offer a connection to local stakeholders including community organizers and existing startups.

Importantly, Madica is keen on investing outside the traditional tech hubs of Nigeria, South Africa, Kenya, and Egypt, although startups from these countries are also eligible.

Emmanuel Adegboye, head of Madica, observed that even in the ”Big 4” markets, tech funding was concentrated in major cities such as Nairobi, Lagos, Cape Town, Johannesburg, and Cairo—but there are many more founders in smaller towns and cities struggling to access funding and programmatic support.

Adegboye believes that investors shy away from markets they are unfamiliar with. If Madica is able to create enough success stories, more investors from around the world will start thinking seriously about investing in the broader African tech landscape, beyond the biggest tech hubs.

“Gobal investors invest in what they know. If, for example, they don’t have someone on the ground in Addis Ababa (Ethiopia), it’s difficult for them to invest. What we’re doing differently is going into these cities, engaging stakeholders and understanding the context,” he told Quartz.

Madica features an open application process on its website, and has three key eligibility requirements for interested founders: Have a minimum viable product (MVP), be engaged full time and have previously received little to no institutional funding.

Madica also plans on driving inclusion in tech—by taking into account factors including local ownership of the startups it invests in and gender diversity.

“Last year, 93% of funding raised in Africa was by companies with male CEOs. I definitely think that needs to change…there’s no evidence that female CEOs can’t do a good job,” Adegboye said.

In conversation with

Emmanuel Adegboye - Head, Madica
Emmanuel Adegboye - Head, Madica
Photo: Madica

🔬 On Madica’s focus on early stage/pre-seed companies in Africa:

“It takes a lot of work at that early stage to achieve product market fit, especially in markets with less advanced ecosystems. We’re focused on early stage companies because we believe that if we’re able to create enough success stories global VCs will see the landscape.”

💸 On investing in new markets:

“We’re not just investing cash but also programmatic support, access to resources that can put you on the right track. It’s a massive undertaking. We’ve been deliberate about engaging ecosystem stakeholders on the ground.”

More venture deals to 👀

The African Women Impact Fund (AWIF) in September announced its first commitment of $60 million. An initiative of the United Nations Economic Commission for Africa (UNECA), it aims to raise up to $1 billion over 10 years for women fund managers, to invest in high-impact sectors and projects across Africa.

Modus, a New York-based venture firm, in November announced its expansion to Africa with the launch of a $75 million blockchain and AI-focused fund for the continent.

Earlier this month, Mastercard unveiled the $200 million Mastercard Foundation Africa Growth Fund (MFAGF). It is intended to support the growth of early-stage SMEs on the continent, and to create work opportunities for young people, particularly women.

More from Quartz Africa

What boosting local funding could mean for Africa’s startup ambitions

💪 Big tech is winning the battle for Kenya’s talent

🖼️ Nairobi’s “silicon savannah” just got more attractive

🏢 What tech hubs have achieved in Africa in the last decade

Thank you for reading our member briefs and supporting Quartz Africa to tell important stories of innovation from across the continent!

—Martin Siele, Nairobi-based contributor

One 🤑 thing

The fintech sector accounted for 54% of all funding raised by African startups in 2021, and is responsible for many of the biggest deals of 2022.